Sunday, May 30, 2010

Greece is in a severe economic mess; investors have stopped and even called back all their investments in this debt-loaded country. Standard & Poor has given a NEGATIVE rating to Greece which means the Investors have lost their faith in this country which worsens the condition even more. The reason put forth is that Greece has taken large magnitude of loans which have even exceeded their GDP. This lowers down their re-payment ability and their ability to sustain the economy. Their growth is stand-still and has even gone negative after the US downturn making it more susceptible to economic depression.

The question here is whether is it a routine economic condition? What should have Greece done to stop this? Was it predictable that this can happen? How can Greece bounce back to the path of Recovery?

It’s not only Greece which is facing this scenario; but the whole of Europe. The € value is its lowest and all of Europe has come together to bail out Greece as they know that they can face a similar situation if they don’t help Greece come out of it. Euro shares have fallen down to a great extent and even a new convention has been termed – ‘PIGS’; which signifies the group of countries which can go into depression in future. The ‘PIGS’ include – Potugal, Ireland, Greece and Spain. Imagine the sentiments have lowered so down that even Tourism in these countries have been effected. Tourism which forms a major contributor to GDP in these countries have shot down suddenly leading to more worries and adding up to the turmoil.

To understand this phenomenon better lets know how the BUSINESS CYCLE works. The concept isn’t new; economists around the world have done extensive research to understand the pattern and put forth their ideologies. India which was once termed as a “Sone ki chidiya” later became one of the poorest countries after colonization and now is growing to become an economic superpower in some years. Similarly US which grew exponentially after the Industrial Revolution had the Great Economic Depression in the 1930’s and Recovered greatly after the World War II. Later in 2008 it faced one of the biggest downfalls in the history of world economy which sent ripple effects throughout the world. To what extent is it possible for us to learn from these events? How can we predict these occurrences and stop them before-hand? May be these are difficult questions to answer. Lets understand the pattern of Business Cycle atleast J